Assenagon Study: US and Japan’s Yen Intervention Aims to Stabilise the US Treasury Market

• Japan and the US jointly purchased yen after the Japanese currency had fallen to its lowest level since 1986.
• The US is also likely to have pursued its own interests: Further sales of US Treasuries by Japan could push already elevated US interest rates even higher.
• The FIMA Repo Facility can temporarily provide Japan with US dollar liquidity without requiring it to sell US Treasuries. However, it merely buys time and does not resolve the underlying problems.

At the end of July, the US and Japan purchased yen as part of a coordinated foreign exchange intervention. The exchange rate had previously risen above 163 yen per US dollar, pushing the yen to its lowest level since 1986. Estimates put the total volume of the operation at up to USD 95 billion, with the US contribution likely amounting to between USD 5 billion and USD 10 billion.

In the latest Assenagon study, Thomas Romig, Managing Director and CIO Multi Asset, and Sebastian Schmider, Head of AI Solutions & Macro Analytics, examine why Washington supported this rare joint intervention. Their thesis is that the operation was intended not only to stabilise the yen, but also to limit additional selling pressure on US government bonds, known as Treasuries.

Yen Intervention by the US and Japan: Two Objectives, One Measure

US participation was unusual. The last time the US took part in a coordinated yen intervention was in 2011, when the aim was to counter an excessive appreciation of the Japanese currency. This time, the interests of the two countries are aligned: Japan wants to support the yen, while the US wants to prevent Tokyo from selling large holdings of US Treasuries to finance the intervention. “The intervention does more than support the yen. Japan is the largest foreign creditor of the US, so the United States is also supporting its own Treasury market,” says Thomas Romig.

US Treasury Market: Japan’s Foreign Exchange Reserves as a Risk Factor

At the end of May, Japanese public- and private-sector investors held around USD 1.143 trillion in US Treasuries. Japan had already deployed foreign exchange reserves equivalent to approximately USD 77 billion in its efforts to support the yen in April and May. The data suggest that securities holdings, including US Treasuries, were also reduced in the process.

Further sales would have placed additional strain on the US bond market at an already challenging time. High government debt, rising refinancing requirements and an uncertain inflation outlook had already driven up yields on long-dated Treasuries. On 31 July, the yield on 30-year US Treasuries reached 5.27%, its highest level since 2007.

FIMA Repo Facility Explained: Dollar Liquidity Without Treasury Sales

At between USD 5 billion and USD 10 billion, the US yen purchases were small relative to the overall operation. The key factors were therefore less the financial firepower involved than the political signal and the provision of an infrastructure through which Japan can obtain US dollars without having to sell Treasuries directly in the market.

Through the FIMA Repo Facility, eligible foreign monetary authorities can temporarily exchange Treasuries held in custody at the Federal Reserve for US dollars. A repo is a short-term, collateralised financing transaction. Japan could subsequently exchange the dollars received for yen in the foreign exchange market. This could at least temporarily limit additional selling pressure on US Treasuries.

So far, however, the data show no use of the facility: Outstanding repo transactions by foreign monetary authorities remained at zero even after the intervention. “In this episode, the FIMA facility primarily serves as an insurance policy: Japan can obtain short-term dollar liquidity without placing Treasuries on the market. This buys time, but it is no substitute for monetary policy adjustments in Japan or sound US public finances,” explains Sebastian Schmider.
 

Implications of the Yen Intervention for Currencies, Bonds and Investors

In the short term, the coordinated action may force investors to adjust speculative yen positions and mitigate sharp yield movements in long-dated US Treasuries. Over the medium term, however, the dilemma remains: Higher Japanese interest rates could stabilise the yen, but they could also raise Japan’s debt-servicing costs and encourage domestic investors to repatriate foreign assets.

As long as the interest-rate differential between Japan and the US remains wide, yen-funded carry trades – strategies in which investors borrow cheaply in yen and invest in higher-yielding assets – will remain attractive.

Investors should therefore monitor not only the USD/JPY exchange rate, but also Japan’s foreign exchange reserves, use of the FIMA Repo Facility and term premia in the US Treasury market. 

Read the full study in the latest issue of Assenagon Perspectives.

München/Frankfurt, 25 August 2026